Today’s blog is the third of a four-part series focusing on the state of the ETF market. In Part III, we debunk two myths that we frequently heard from our polled MFDA-licensed advisors. Our fourth and final installment will address two more common misconceptions.
Myth: MFDA advisors lack access to ETFs
Not entirely true!
Under Canadian securities legislation, many ETFs fall under the definition of a mutual fund. For many MFDA dealers, however, the challenges in offering ETFs have been over their back-office systems, advisor compensation, access to an exchange – and that’s just to name a few. To be able to offer ETFs then, MFDA firms have needed to work with IIROC-regulated firms. But, there is another way that MFDA firms can access ETFs – and that is through fintech. Over the past several years, a small but growing number of independent dealers have been turning to firms like Univeris, which has the platform to process ETF trades and the infrastructure to solve back-office impediments.
So, access to ETFs does exist for MFDA advisors, and we expect to see more mutual fund dealers put them on their product shelves in the foreseeable future, not least because they have the potential to increase assets under management.
Before MFDA-licensed advisors can trade ETFs for their clients, they must become qualified by meeting mandatory MFDA proficiency requirements (i.e., education, training and experience).
To recap, here’s how MFDA firms (and introducing brokers) can offer ETFs to their advisors and, in turn, to clients:
- Partner with technology companies (like Univeris) or outsource to third-party software vendors to facilitate ETF trades
- Continue to work with IIROC firms to execute ETF trades
Myth: ETFs are too passive for my book of business
Also not entirely true!
While ETFs started out as passive index-replicating investment vehicles, they have since evolved into smart beta (or strategic beta) indexing and actively managed ETFs. What’s true of passive ETFs within the Canadian ETF industry is that they continue to retain most of the assets under management, though this percentage has been declining over the years due to growing investor appetite for product variety and exposure to niche asset classes.